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Video: California still sailing murky fiscal waters?

SACRAMENTO, Calif. — Lawmakers on Friday approved a complex package of spending cuts, local government raids and accounting maneuvers to fill California’s gigantic budget deficit, providing hope that the state might begin a slow climb out of a deep financial hole.

The legislative package of about 30 bills, with final passage coming in the Assembly in the afternoon after an all-night session, was similar to the deal announced earlier this week by Gov. Arnold Schwarzenegger and legislative leaders from both parties.

But the Assembly rejected two of the most controversial measures: a plan to take about $1 billion in transportation funding from local governments, and allowing oil drilling off the California coast for the first time in 40 years. That was to have brought in $100 million this fiscal year.

The loss of $1.1 billion from the budget package means Schwarzenegger will have to use his authority to make even deeper cuts to close the gap.

But the Assembly cuts do not appear deal-breakers, with Schwarzenegger saying he would finish up the package next week. He acknowledged that the budget deal will mean teachers are laid off, college students will pay more and many people will suffer, but said lawmakers had few options.

"It's the only way to solve the problem and to save our great state. The only way to do it is to spread the sacrifice. It saves our state from financial ruin and from drowning into the fiscal abyss."

Assembly Speaker Karen Bass, D-Los Angeles, thanked members for their days of hard work, saying by the time the vote took place “I don’t even remember if it’s afternoon, evening or night.”

Financial problems grow by the weekAt a news conference after the vote, she said the Assembly would work with the governor’s office when lawmakers return in August to find ways to make up the lost revenue.

On whether the problem is solved: “We do not exactly know where the economy is going right now.”

The measures passed by the Legislature technically amounted to a revision of a 2009-10 fiscal year budget that lawmakers passed in February during an emergency session.

Since then, the state’s fiscal condition has grown more dire by the week, led by a dramatic drop in personal income tax revenue. The cash crisis has become so acute that California has been forced to send IOUs instead of payments to thousands of state contractors and was facing the prospect of being unable to fund pension contributions and or pay employees by September.

Rich Pedroncelli
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AP

State Sen. Sam Aanestad can't hold back a yawn during the early morning hours at the Capitol in Sacramento.

While lawmakers agreed the deficit-closing plan was distasteful, most said they had little choice.

The budget agreement will be felt in nearly every community of the nation’s most populous state.

Cuts to public schools are expected to force teacher layoffs, more crowded classrooms and scaled-back offerings in art, music and sports.

College students will pay hundreds of dollars more per year in fees, course offerings will shrink and tens of thousands of prospective students will be turned away.

Welfare, health care programs for low-income families and in-home services for the disabled, elderly and frail will be reduced. Nearly 40,000 will have their in-home support services terminated.

Some parks to close, buildings to be soldEven state workers, long protected by powerful public employee unions, have been affected. Schwarzenegger has ordered them to take three days off a month without pay, equating to a 14 percent pay cut.

An undetermined number of state parks will close after Labor Day, and the state will be authorized to sell 17 state office buildings to raise cash, renting the space back from the new landlord. The Orange County Fairgrounds also will go on the market.

State Senate leader Darrell Steinberg, D-Sacramento, said he was pained by the cuts to public schools and health and human services programs. After his chamber passed the series of budget bills early Friday morning, some 12 hours after it began debate, he said he did not feel joy, but only relief.

“I think we did our job well and cut in a way that was as responsible as it could be,” he said.

The oil-drilling measure emerged as one of the most contentious, with lawmakers debating for more than an hour before Democrats prevailed in killing it. Assemblyman Pedro Nava, a Democrat from Santa Barbara who has long opposed the project, said the governor appeared to be willing to hijack California’s future because of a budget crisis.

The spending cuts amount to roughly 60 percent of a budget deficit projected at $26 billion through June 2010. The size of the shortfall is unprecedented, representing nearly 30 percent of the state’s $88 billion general fund.

Spending hasn’t been at that level in California since 2005, underscoring the severity of the state’s economic collapse. Its unemployment rate of 11.6 percent is the highest on record, and personal income tax revenue to the state fell 34 percent during the first half of the year.

When Schwarzenegger signs the budget agreement, state officials hope it will be enough to satisfy the bond markets and allow the state to begin taking out short-term loans.

Cities suffering
But other issues loom.

The state’s largest employee union, representing 95,000 workers, is asking its members whether they want to authorize a strike or walkout to protest the monthly furloughs.

Cities and counties, meanwhile, have said they might to stop the state from taking some $4 billion in local tax money. Local governments throughout the state, hit by declining property and sales taxes, already are laying off law enforcement officers, firefighters and other employees, while trimming park maintenance, library, trash and other services.

“This budget deal doesn’t just kick the can down the road; it kicks it off the road into our front yard, and we’ve got a toxic mess spilling out that cities and counties are going to have to clean up,” said San Jose Mayor Chuck Reid.

The rapid decline in tax revenue and Republicans’ insistence on no tax increases left lawmakers with few options but to cut spending, borrow money from elsewhere and resort to various accounting tricks to balance its books.

One of those gimmicks was to defer state employee paychecks by one day, from June 30 to July 1, 2010, for a savings on paper of $1.2 billion. The state also will accelerate collection of 2010 personal income and corporate taxes to bring in revenue earlier than anticipated.

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